The COLA that matters most to retirees isn’t Coca-Cola. It is the Cost-of-Living Adjustment (COLA) that the Social Security system institutes annually to account for inflation. The higher this COLA, the more money Social Security beneficiaries receive. The 2025 Social Security COLA increase, however, was the lowest since 2021.
Bottom Line Personal asked Social Security expert Martha Shedden, CRPC, RSSA, about the 2025 Social Security COLA increase as well as three other Social Security changes that are taking effect this year…two potential changes that are under discussion…and key details about the looming issues that could lead to very substantial changes for the Social Security system in the years ahead.
Here’s what definitely will be different about the Social Security system in 2025…
The 2025 Social Security COLA increase of 2.5% is the lowest of the post-pandemic era—the COLA was 3.2% in 2024…8.7% in 2023…and 5.9% in 2022. Even though this 2025 Social Security COLA increase isn’t actually low by historical standards—it’s roughly on par with the average COLA this century—it likely will feel low to some retirees who are struggling to keep up with their rapidly rising expenses. Some critics argue that COLA calculations don’t accurately reflect the actual cost increases faced by retirees.
Still working but already receiving Social Security benefits? If you haven’t yet reached your “full retirement age,” you can earn up to $23,400 in 2025 without having a portion of your benefits withheld. In 2024, this Social Security “earnings test” threshold was $22,320. Worth noting: Somewhat different earnings test rules apply based on the calendar year in which you reach your full retirement age—if you were born in the late 1950s, your full retirement age falls between 66 and 67. The Social Security earnings test doesn’t apply once you’re past the month (not full year) in which you reach full retirement age.
The Social Security system is funded largely through a 12.4% tax on most earned income. Half of this tax typically is paid by the employee and half by the employer, though people who are self-employed have to pay the entire amount on their own. Some good news for high earners: This steep tax does not apply to income above a certain earnings threshold. Some bad news: That income threshold is increasingly difficult to reach. It was below $100,000 as recently as 2007, but by 2024, it had climbed to $168,600…and in 2025, earned income all the way up to $176,100 faces this Social Security tax.
Starting in 2025, assistance at Social Security field offices will be provided by appointment only, with very few exceptions. Seeking assistance at a Social Security office without an appointment was never a great idea—wait times often were very long—so this rule change is sensible.
Go to SSA.gov/locator to find your local office and make an appointment if you need to meet with a Social Security representative either by phone or in person. A phone appointment is sufficient with most Social Security matters, though working with someone face to face is advisable and even necessary in certain potentially complex situations, such as when applying for survivor benefits…when claiming benefits based on the earnings record of a former spouse whom you divorced, especially if that former spouse is now deceased…when there are multiple documents or letters being discussed…or when dealing with issues related to overpayments, earnings test withholding or lump-sum pensions.
The change in Presidential administration brings with it the possibility of a very significant change to the Social Security system—the end of taxation of Social Security benefits.
Currently nearly half of Social Security benefit recipients must pay income taxes on a portion of the Social Security benefits they receive. The incoming President has cited the elimination of these taxes as a potential goal. But as a practical matter, eliminating these taxes would be very difficult to accomplish. The money that the government raises by taxing Social Security benefits goes back into the Social Security system. Since this system already is on track to be unable to meet its financial obligations in the not-too-distant future (more about this below), eliminating this tax revenue would only expand and accelerate its already serious problems. Most likely outcome: These taxes will continue.
The other modification to the Social Security system that may occur soon is the passage of the “Social Security Fairness Act,” which would mainly serve to boost benefits for certain public sector employees. This Act has been passed by the US House of Representatives, but as of press time doubts were mounting whether it would be passed by the Senate. Here, too, the sticking point is costs—if this legislation is enacted, it would drain hundreds of billions of dollars from the already strained Social Security system, something an increasing number of politicians are hesitant to do.
You probably already know that the Social Security Trust Fund is projected to run out of money in 2034 or 2035. But what that means precisely has been a source of some confusion. Some key points about the Social Security program’s prospects for the years ahead…
Social Security will not disappear when the Social Security Trust Fund is depleted. Even if this trust fund was completely emptied, Social Security would go on paying benefits using the taxes being paid into the system by current workers. Those incoming taxes wouldn’t be sufficient to pay all the benefits retirees are due, but they would be enough to pay around 83% of them, based on the most recent economic projections. A 17% reduction in benefits obviously would be a big hit for many retirees, but it’s a whole lot better than Social Security disappearing entirely.
Politicians probably will find a way to avoid that 17% benefit cut. Bipartisanship has been in short supply in US politics lately, so it’s reasonable to worry whether Washington will manage to sort out the Social Security system’s financial challenges. But there’s one very good reason to suspect it will—failure to do so would be very poorly received by voters on both sides of the aisle, so saving Social Security is in the best interests of politicians from both parties. One recent survey found that 90% of Democrats believe finding a solution to the Social Security system’s financial issues should be a priority, as do 86% of Republicans and 88% of independents.
…but it’s unlikely that a solution will be achieved until the 11th hour. Politicians don’t want to be associated with the 17% Social Security benefit cut that will occur if they do nothing…but most of them also don’t want to make the tough choices and compromises that will be necessary to avoid that cut. The last time the Social Security system faced serious financial problems, back in the early 1980s, the necessary reforms were not enacted until the program was just months from being unable to pay benefits in full and on schedule. Today’s politicians likely will drag their feet for as long as possible, too.
Expect the eventual modifications to be less obvious than a big across-the-board benefit cut. A major reduction in retirees’ Social Security checks is the sort of thing that gets politicians voted out of office. But small, technical changes to how benefits are calculated for future generations of retirees? And reductions in annual cost-of-living increases? Or adjustments to the income that’s subject to Social Security taxes? Those are the sort of below-the-radar changes that politicians likely will find more palatable when their backs are against the wall and they’re forced to act. These are the sort of changes many voters might fail to fully understand—the Social Security system is so complex that virtually no one understands all its ins and outs. Obvious changes such as outright benefits cuts, tax hikes and retirement age increases likely will be kept as modest as possible.
